Highlights

  • Investors should seek to diversify the risk factors that drive portfolio returns rather than by asset classes alone.
  • Our research indicates that asset classes are a composite of six common risk factors: economic, credit, emerging markets (political), liquidity, real rates and inflation.
  • It takes advanced research, technology, infrastructure and expertise to identify and access discrete risk factor exposures and blend them in an optimal portfolio with the highest Sharpe Ratio.
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Diversifying risk is essential, but it is not enough to only balance exposure to asset classes. The Strategic Risk Allocation team discusses truly effective diversification by better controlling exposure to the drivers of asset returns.

The market fallout from 2008 drove home a clear lesson: the diversification of risks should be the critical goal in portfolio construction, rather than the diversification of capital. As a result, the most sophisticated institutional investors around the globe are increasingly diversifying by risk exposure rather than by asset class alone.*
Our research indicates that asset classes are a composite of six common risk factors: economic, credit, emerging markets (political), liquidity, real rates and inflation. We believe these fundamental risk factors offer more precision and clarity regarding the drivers of asset class returns and their co-movements.
An optimal portfolio with the highest expected Sharpe Ratio (return per unit of risk), can be achieved by allocating capital across risk factor exposures, offering diversification benefits over a traditional 60% equity and 40% fixed income portfolio.
It takes advanced research, technology, infrastructure and expertise to identify and access discrete risk factor exposures and blend them in an optimal portfolio with the highest Sharpe Ratio.

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More on the Fund

A multi-asset balanced-risk strategy

* AUM as of 12/31/14.

Important Risks: Strategic Risk Allocation Fund is actively managed and its characteristics will vary.

Bond values fluctuate in price so the value of your investment can go down depending on market conditions. Fixed income risks include interest-rate and credit risk. Typically, when interest rates rise, there is a corresponding decline in bond values. Credit risk refers to the possibility that the bond issuer will not be able to make principal and interest payments. There may be less information on the financial condition of municipal issuers than for public corporations. The market for municipal bonds may be less liquid than for taxable bonds. Some investors may be subject to Alternative Minimum Tax (AMT). Capital gains distributions, if any, are taxable. The fund may use derivatives to hedge its investments or to seek to enhance returns. Derivatives entail risks relating to liquidity, leverage and credit that may reduce returns and increase volatility. Obligations of US govt. agencies are supported by varying degrees of credit but generally are not backed by the full faith and credit of the US govt. Non-investment-grade debt securities (high-yield/junk bonds) may be subject to greater market fluctuations, risk of default or loss of income and principal than higher rated securities.

The opinions expressed are those of the fund's portfolio management team as of January 26, 2015, and may change as subsequent conditions vary. Information and opinions are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. This material does not constitute investment advice and is not intended as an endorsement of any specific investment. Investment involves risk. Reliance upon information in this material is at the sole discretion of the reader.

Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained visiting the iShares ETF and BlackRock Mutual Fund prospectus pages. Read the prospectus carefully before investing.

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